Gold steadies as 2 pct slide tempts price-sensitive buyers

By Jan Harvey

LONDON (Reuters) - Gold steadied near $1,150 an ounce on Tuesday as demand for physical metal picked up after the previous day's 2 percent slide, though prices remain under pressure from gains in the dollar and stocks.

Buying of physical metal gathered pace in major consumer China on Tuesday, traders said, supporting prices after dollar strength pushed them sharply lower in the previous session.

Spot gold was flat at $1,150.45 an ounce at 1021 GMT, while U.S. gold futures for December delivery were down $9.90 an ounce at $1,149.90.

The metal slid to a 4-1/2 year low at $1,131.85 an ounce last week, and is currently down 4.3 percent this year.

"Retail demand is very strong since prices came off," Heraeus trader Alexander Zumpfe said. "Overall, physical demand is lending some support - Asia is also showing steady buying interest, though not on extreme levels."

A 0.2 percent rise in the dollar index is keeping pressure on gold. A stronger dollar makes assets priced in the U.S. unit more expensive for holders of other currencies.

Appetite for other assets is also improving. European stocks rose, with investors bullish after Wall Street posted a fourth straight record close and Tokyo's Nikkei hit a seven-year high.

Gold's inability to retain Friday's 3 percent jump suggests investors are selling into rallies, expecting more losses on the back of the U.S. economic recovery, a robust dollar and expectations that the Federal Reserve will raise rates sooner rather than later.

Gold could fall towards $800-$900 an ounce, a level not seen since the 2008/2009 financial crisis, as the metal is no longer seen as a decent portfolio diversifier, hedge fund Red Kite said on Monday.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 1.8 tonnes on Monday to 725.36 tonnes, a six-year low. The fund has seen outflows of 15.8 tonnes so far this month.

Silver was down 0.3 percent at $15.51 an ounce. Spot platinum was down 0.2 percent at $1,190.24 an ounce, while spot palladium was down 0.2 percent at $757.35 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Michael Urquhart)